Accelerating Indonesia’s digital economy: Assigning the 700 MHz band to mobile broadband September 2018 Copyright © 2018 GSMA ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND The GSMA represents the interests of mobile operators GSMA Intelligence is the definitive source of global mobile worldwide, uniting more than 750 operators with over 350 operator data, analysis and forecasts, and publisher of companies in the broader mobile ecosystem, including authoritative industry reports and research. Our data covers every handset and device makers, software companies, equipment operator group, network and MVNO in every country worldwide providers and internet companies, as well as organisations in – from Afghanistan to Zimbabwe. It is the most accurate and adjacent industry sectors. 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Follow GSMA Intelligence on Twitter: @GSMAi. www.gsmaintelligence.com [email protected] Authors: James Robinson, Senior Analyst Mayuran Sivakumaran, Senior Economist ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND Contents Ministerial foreword 2 1. Executive summary 4 2. Indonesia: the emerging digital economy giant 6 2.1 Mobile market evolution 7 2.2 Trends in media content delivery platforms 13 2.3 Digital innovation 14 3. How mobile broadband can accelerate the digital economy 18 3.1 Digital citizenship 18 3.2 Health 19 3.3 Education 20 3.4 Smart cities and the Internet of Things 21 3.5 Consumer base growth increasing the addressable market 22 4. The mobile industry’s role in achieving the Sustainable Development Goals 24 4.1 Mobile addressing social challenges 24 5. The importance of spectrum for mobile broadband adoption 26 5.1 The need for spectrum 26 5.2 Releasing the digital dividend in Indonesia 29 5.3 Eective spectrum pricing 30 5.4 Benefits of a long-term spectrum roadmap 31 6. Economic benefits of assigning 700 MHz to mobile broadband 32 6.1 There will be a capacity constraint with the current provision of spectrum 33 6.2 $11 billion in additional economic benefits for Indonesia 34 6.3 The benefits of 700 MHz can be realised under certain conditions 36 7. Other factors to support the development of the digital economy 38 7.1 Network sharing can lower risks and costs of infrastructure deployment 38 7.2 Market consolidation to maintain healthy industry economics 39 7.3 Other regulatory obligations to support the digital economy 41 7.4 Enhancing connectivity and inclusion through the appropriate tax system 42 7.5 Identity as a foundational element of a digital economy 43 7.6 A forward-looking regulatory environment for the data economy 44 8. Appendix 46 8.1 Methodology for the estimation of benefits of assigning 700 MHz to mobile broadband 46 1 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND Ministerial foreword 2 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND High-speed connectivity is the basic building block of a digital economy. The digital economy leverages technology developments of the last 30 years to allow Indonesians to be part of the largest digital economy in South-East Asia and access government, e-commerce, education and information services and communicate with fellow Indonesians or across the world. In a country of over 17,000 islands and more than 260 million people, availability of spectrum is critical to ensuring connectivity is available across the nation, providing all Indonesians with reliable and fast access. Indonesia’s digital economy is demonstrating its world-leading This Indonesia report highlights the key benefits Indonesia can capability, attracting billions in investments for digital ventures. It expect from determining a plan for the Digital Dividend. Indonesia is critical that Indonesia is at the forefront of spectrum policy and is emerging as the digital economy powerhouse of South-East Asia allocation to ensure the digital economy continues to grow and and the Digital Dividend creates an opportunity for all Indonesians achieve its potential for financial inclusion, economic contribution, to enjoy high-speed connectivity in the most remote areas, helping digital citizenship and social equality. to accelerate participation in our nation’s prosperity and economic growth. 700 MHz band spectrum, generally described as the Digital Dividend, is a core resource for high-speed broadband globally, Rudiantara, delivering immediate GDP impact as the spectrum is reallocated Minister of Communication and Informatics of the from analogue TV to broadband services. Republic of Indonesia Securing agreement for a spectrum strategy creates the foundation for the Indonesian government to achieve its vision for the 700 MHz band and step forward confidently and also build spectrum policy and plans to ensure Indonesia’s digital economy accelerates as further technology developments including 5G will provide a platform for innovation and economic growth for all Indonesians. 3 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND 1. Executive Summary 4 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND Since the start of the century, the mobile sector in Indonesia has experienced years of growth and development. Several operators have launched 3G services, with each expanding coverage to much of the country. Some market restructuring has intensified competition and kept prices relatively low – though state-owned Telkomsel continues to have a market share advantage over its rivals. 4G take-up is beginning to increase, albeit later than some neighbouring countries, and smartphone adoption is rising in both urban and rural areas. Combined with an expanding middle class and a tech-savvy youth population, this strongly positions Indonesia to become a digital economy powerhouse in South-East Asia. Moving forward on the digitisation journey Policymakers should also consider rules to facilitate network For Indonesia to realise its full potential, the mobile industry must sharing, which could boost high-speed mobile connectivity by secure access to vital spectrum bands. Internet access remains lowering the costs and risks to deploying infrastructure, particularly a key barrier for citizens’ full participation in the country’s digital in remote or topographically challenging areas. In addition, the society. While 3G (at 900 MHz) has been successful in extending appropriate tax regime needs to be in place so that while operators basic mobile broadband to the unconnected, the technology contribute a fair amount to government tax revenue, the burden will not be able to cope with the significant tra£c growth does not become disproportionate. Such measures would help expected over the next 10 years. Mobile network operators are establish a policy environment that is conducive to operators predominantly using 1800 MHz spectrum for 4G rollout, but making the considerable investments needed to take Indonesia’s allocating the 700 MHz band quickly and in su£cient quantity digitisation journey forward. would support their eorts to expand coverage, despite the geographical challenges, and help reduce the prevailing digital divide. Assigning 700 MHz to mobile broadband would deliver economic benefits of $11 billion (IDR161 trillion) to the Indonesian economy over the period 2020–2030, equivalent to an incremental 1% of GDP. GSMA Intelligence 5 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND 2. Indonesia: the emerging digital economy giant FIGURE 1: INDONESIA: KEY FACTS1 GENERAL ECONOMY POPULATION 3 264m POPULATION DENSITY2 GDP: $1.02 TRILLION POPULATION GROWTH OFFICIAL LANGUAGE: GDP GROWTH INDONESIAN 4.9% 6.2% 5.1% (2017) 2000 2010 2017 GDP PER CAPITA $3,8474 PEOPLE URBANISATION GENDER SPLIT (2017) AGE RANGES 42.0% 49.9% 55.2% 0-14 2000 2010 2017 30.7% 29.0% 27.4% LABOUR FORCE PARTICIPATION (2017)5 50.3% 49.7% 2000 2010 2017 81.8% 50.7% 66.3% MALE FEMALE 15-64 MALE FEMALE TOTAL UNEMPLOYMENT7 64.6% 66.2% 67.3% 2000 2010 2017 LITERACY (2016)6 65 OR OLDER 97.2% 93.6% 95.4% 4.7% 4.8% 5.3% 6.1% 5.6% 4.3% 2000 2010 2017 MALE FEMALE TOTAL 2000 2010 2017 Source: World Bank 1. Data from the World Bank: http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators# 2. People per square kilometre of land area. 3. Current US$. 4. Current US$. 5. People aged 15 and above. Modeled International Labour Organization (ILO) estimate. 6. People aged 15 and above. 7. Modeled ILO estimate. 6 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND 2.1 Mobile market evolution FIGURE 2: MILESTONES OF THE INDONESIAN MOBILE MARKET 1994/95 Partial privatisation of Telkom and Indosat. 1994 2000 2000 Telecommunications Law (1999) comes into eect. 2002 Market penetration stands at 5%. 2002 2005 2005 Indosat and Telkomsel trial 3G services. 2006 3G licences awarded. 2006 Telkomsel launches commercial 3G service. 2007 Hutchison and Smart Telecom enter mobile market. 2007 Government caps foreign direct investment (FDI) in the telecoms sector. 2008 NTS relaunches GSM services under Axis brand. 2008 Market penetration reaches 50% of population. 2010 Mobile-8 Telecom and Smart merge brands under 2010 new name, SmartFren.